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TOTM "I propose a different way to view the economy, and one that might help us better explain what we are doing to students and to policy makers, including voters."
My book, The Capitalist Paradox: How Cooperation Enables Free Market Competition, Bombardier Books, 2019, has been published. The main question I address in this short book is: Given the obvious benefits of markets over socialism, why do so many still oppose markets? I have been concerned with this issue for many years. Given the current state of American politics, the question is even more important than when I began the book.
Read the full piece here.
Popular Media Wall Street Journal OPINION July 31, 2012 ‘A Climate That Helps Us Grow’ By PAUL H. RUBIN President Obama’s riff on small business—”If you’ve got . . .
Wall Street Journal
‘A Climate That Helps Us Grow’
By PAUL H. RUBIN
President Obama’s riff on small business—”If you’ve got a business, you didn’t build that, somebody else made that happen”—has become a major controversy. The Romney campaign has made this quote the subject of several speeches and ads, and there have been rallies all over the country of business people with signs saying that “I did build this business.”
Mr. Obama is now claiming that his words, delivered at a campaign stop in Roanoke, Va., on July 13, were taken out of context. “Of course Americans build their own businesses,” he said in a campaign ad last week. What he meant was simply that government sets the stage for business creation. In his speech, and again in his campaign ad, the example Mr. Obama pointed to was “roads and bridges.”
The context of the speech indicates the president really did mean that “you didn’t build that.” But let’s give him the benefit of the doubt; let’s assume he merely meant that business is impossible without government institutions that create the infrastructure for the economy to operate. As Mr. Obama’s deputy campaign chief Stephanie Cutter said, in clarifying his original remarks on July 24, “We build our businesses through hard work and initiative, with the public and private sectors working together to create a climate that helps us grow. President Obama knows that.”
But business is certainly not getting “a climate that helps us grow” from the current administration. That administration has instead created a hostile climate through its regulatory policies.
The news media report almost daily about new regulatory burdens. More generally, according to an analysis in March by the Heritage Foundation, “Red Tape Rising,” the Obama administration in its first three years adopted 106 major regulations (those with costs over $100 million), compared with 28 such regulations in the George W. Bush administration. Heritage notes that there are 144 more such major regulations in the pipeline.
Consider a major example of government investment—roads and bridges. A transportation system needs roads, but it also needs gasoline. This administration’s policies—its refusal to allow a private company to build the Keystone XL pipeline, its reduction in permits for offshore drilling and increased EPA regulation of pollutants—retard the production of gasoline. If transportation is an important input from government to creating a favorable climate for business, shouldn’t we be encouraging, not discouraging, gasoline production?
Other inputs needed by business are capital and labor. The Dodd–Frank Wall Street Reform and Consumer Protection Act, signed by Mr. Obama and enforced by his appointees, makes raising capital and investing more difficult. Since many regulations needed to implement this law have not even been written, business cannot know how to adapt to them. This increases uncertainty and so reduces incentives for investment.
The increased minimum wage, passed and signed in the early days of the administration, discourages hiring of entry-level workers. ObamaCare has increased uncertainty regarding future labor costs and so hindered business in hiring and expanding. The pro-union decisions by Obama appointees at the National Labor Relations Board do not create a climate to help the economy grow.
There are many other burdens placed on business. Example: The Americans With Disabilities Act is being interpreted by the Justice Department to require all hotel-based swimming pools to provide increased access to disabled persons. This will come at a high cost per pool. Many hotels and motels are small, family-run enterprises. This requirement will either lead to an increase in prices or to a decision not to have pools at all.
Either policy will induce patrons to shift to larger chain motels. Interestingly, the application of this rule has been delayed for existing pools until Jan. 31, 2013, after the election. Families vacationing this summer will not notice the new requirement.
If we accept the plain meaning of Mr. Obama’s speech, it indicates that he does not believe in the importance of entrepreneurs in creating businesses. But if we accept the reinterpretation of his speech in light of his administration’s deeds, it indicates a belief that a hostile regulatory climate poses no danger to economic growth. Either interpretation means that this administration is not good for business.
Mr. Rubin is professor of economics at Emory University and president-elect of the Southern Economic Association.
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Filed under: consumer protection, doj, health care, health care reform debate, regulation Tagged: regulation
Popular Media Our greatly lamented colleague Lary Ribstein was a movie buff. Some time ago he wrote an encyclopedic article on business in the movies, “Wall Street . . .
Our greatly lamented colleague Lary Ribstein was a movie buff. Some time ago he wrote an encyclopedic article on business in the movies, “Wall Street and Vine: Hollywood’s View of
Business.” At the time of his death, he and I were in discussions about publishing this article in the journal I edit, Managerial and Decison Economics. After his tragic death, I contacted his widow, Ann, and received permission to publish the article. It is now published in the June issue of MDE. (If your library does not subscribe to MDE, the article is still available on SSRN.) Anyone with any interest in the movies and their perception of business must read this article. Given the volume of Larry’s scholarship, it is amazing that he had time to see as many movies as he discusses in this article.
Filed under: art, business, film, larry ribstein rip
Popular Media Last week the New York Times ran an article, “Building the Next Facebook a Tough Task in Europe“, by Eric Pfanner, discussing the lack of . . .
Last week the New York Times ran an article, “Building the Next Facebook a Tough Task in Europe“, by Eric Pfanner, discussing the lack of major high tech innovation in Europe. Eric Pfanner discusses the importance of such investment, and then speculates on the reason for the lack of such innovation. The ultimate conclusion is that there is a lack of venture capital in Europe for various cultural and historical reasons. This explanation of course makes no sense. Capital is geographically mobile and if European tech start ups were a profitable investment that Europeans were afraid to bankroll, American investors would be on the next plane.
Filed under: advertising, consumer protection, intellectual property, privacy, regulation, technology
Popular Media One topic that has long interested me is the source of dislike or hatred of capitalism; my Southern Economics Journal article “Folk Economics” (ungated version) . . .
One topic that has long interested me is the source of dislike or hatred of capitalism; my Southern Economics Journal article “Folk Economics” (ungated version) dealt in part with this topic. Today’s New York Times has an op-ed, “Capitalists and Other Psychopaths” by William Deresiewicz, who has taught English at Yale and Columbia, that both illustrates and explains this hatred. What is interesting about this column is that it is entirely about the character and behavior of “the rich” including entrepreneurs. The job creating function of business is briefly mentioned but most of the article focuses on “fraud, tax evasion, toxic dumping, product safety violations, bid rigging, overbilling, perjury.”
What is nowhere mentioned is anything to do with the goods and services produced by business. This is a common attitude of critics of capitalism. In many cases, capitalists may suffer the same personality defects as the rest of us. And, as Mr. Deresiewicz points out, scientists, artists and scholars may also be hard working and smart. But capitalism does not reward moral worth or hard work. Capitalism rewards providing stuff that other people are willing to pay for. While is is easy to point out the stupidity of the critique (Mr. Deresiewicz has written and seems proud of his book, published by a capitalist publisher and available from various capitalist booksellers) that is not my point. Rather, this column is interesting in that it is a pristine example of a totally irrelevant critique of capitalism, written by what is a smart person. He does cite Adam Smith, but seems to misunderstand the basic functioning of markets. Markets reward what one does, not what one is.
Filed under: business, corporate social responsibility, economics, entrepreneurship, markets, social responsibility
Popular Media The EU is apparently thinking of adopting common and highly restrictive privacy standards which would make use of information by firms much more difficult and . . .
The EU is apparently thinking of adopting common and highly restrictive privacy standards which would make use of information by firms much more difficult and would require, for example, that data be retained only as long as necessary. This is touted as pro-consumer legislation. However, the effects would be profoundly anti-consumer. For one thing, ads would be much less targeted, and so consumers would get less valuable ads and would not learn as much about valuable prodcts and services aimed at their interests. For another effect, fraud and identity theft would become more common as sellers could not use stored information to verify identity. Finally, costs of doing buisness would increase, and so we would expect to see fewer innovations aimed at the European market, and some sellers might avoid that market entirely.
Filed under: privacy
Popular Media The fight over SOPA is about the ownership of intellectual property. Rights to intellectual property have two effects. The benefits of intellectual property are the . . .
The fight over SOPA is about the ownership of intellectual property. Rights to intellectual property have two effects. The benefits of intellectual property are the incentives for creation. The costs are that after some work is created any price above marginal cost (which is often zero for digital property) will discourage valuable use.
Every piece of intellectual property than now exists was created with the incentives that were in place when it was created. No change in intellectual property rights can have any effect on existing works. Therefore, any change in property rights should be entirely prospective. That is, any change in property rights should effect only works copyrighted after the passage of the legislation.
Of course, there are huge rents associated with the ownership of existing rights, and fights over these rents will continue. But we should recognize that these fights are over rents — payments which have no incentive effects. If our goal is efficiency, we should stop wasting resources on these fights and start from now.
Filed under: copyright, intellectual property, truth on the market
Popular Media By now everyone is probably aware of the “tracking” of certain cellphones (Sprint, iPhone, T-Mobile, AT&T perhaps others) by a company called Carrier IQ. There . . .
By now everyone is probably aware of the “tracking” of certain cellphones (Sprint, iPhone, T-Mobile, AT&T perhaps others) by a company called Carrier IQ. There are lots of discussions available; a good summary is on one of my favorite websites, Lifehacker; also here from CNET. Apparently the program gathers lots of anonymous data mainly for the purpose of helping carriers improve their service. Nonetheless, there are lawsuits and calls for the FTC to investigate.
Aside from the fact that the data is used only to improve service, it is also useful to ask just what people are afraid of. Clearly the phone companies already have access to SMS messages if they want it since these go through the phone system anyway. Moreover, of course, no person would see the data even if it were somehow collected. The fear is perhaps that “… marketers can use that data to sell you more stuff or send targeted ads…” (from the Lifehacker site) but even if so, so what? If apps are using data to try to sell you stuff that they think that you want, what is the harm? If you do want it, then the app has done you a service. If you don’t want it, then you don’t buy it. Ads tailored to your behavior are likely to be more useful than ads randomly assigned.
The Lifehacker story does use phrases like “freak people out” and “scary” and “creepy.” But except for the possibility of being sold stuff, the story never explains what is harmful about the behavior. As I have said before, I think the basic problem is that people cannot understand the notion that something is known but no person knows it. If some server somewhere knows where your phone has been, so what?
The end result of this episode will probably be somewhat worse phone service.
Filed under: advertising, consumer protection, privacy, regulation, technology, telecommunications, wireless
Popular Media Today’s Wall Street Journal has a long article-debate on privacy. The strongest pro-privacy is Christopher Soghoian of the Open Society Institute. He confuses commercial privacy . . .
Today’s Wall Street Journal has a long article-debate on privacy. The strongest pro-privacy is Christopher Soghoian of the Open Society Institute. He confuses commercial privacy with government privacy:
“The dirty secret of the Web is that the “free” content and services that consumers enjoy come with a hidden price: their own private data. Many of the major online advertising companies are not interested in the data that we knowingly and willingly share. Instead, these parasitic firms covertly track our web-browsing activities, search behavior and geolocation information. Once collected, this mountain of data is analyzed to build digital dossiers on millions of consumers, in some cases identifying us by name, gender, age as well as the medical conditions and political issues we have researched online.”
When asked “Why is that a problem” he replies
“Many of the dangers posed by digital dossiers do not occur regularly, but are incredibly destructive to people’s lives when they do. An unlucky few will be stalked, fired, surveilled, arrested, deported or even tortured, all as a result of the data kept about them by companies and governments. Much more common are the harms of identity theft or public embarrassment. Even when companies follow best practices—and few do—it is impossible to be completely secure.”
Note that “parasitic firms” are collecting the data which is then used for arrest, deportation, and torture. A bit of a disconnect. Identity theft is a problem, but the risk is decreasing and the costs are almost always low. Moreover, identity thieves are crooks, not firms.
What is particularly interesting about the article is the survey data reported. It demonstrates peoples’ confusion about the issues. 92% of the adults surveyed “Think that there should be a law that requires websites and advertising companies to delete all stored information about an individual” but between 32% and 47% would like websites to provide information of some sort (ads: 32%, discounts: 47%, or news: 40%) “tailored to their interests.” But of course these numbers are totally inconsistent. If websites cannot keep any information about an individual, then they cannot provide tailored information since there will be nothing on which to base the tailoring. The relevant questions are tradeoff questions, but the reported survey does not address these.
Filed under: advertising, privacy